A market is any arrangement or system where buyers and sellers of goods and services are brought into contact for the purpose of transacting business. Transaction in a market could be done physically or online.
PERFECT COMPETITION: Perfect competition is a market structure characterized by complete absence of rivalry among individual firms. It is a market characterized by the presence of large numbers of buyers and sellers who are engaged in the sales of homogeneous product. Perfect competition in economics has opposite meanings to everyday use of the term. All firms in the industry are price taker. In theory, perfect competition implies no rivalry among firms.
ASSUMPTIONS OF PERFECT COMPETITION
1) Large Numbers of Sellers and Buyers. A perfect competitive market has a large number of buyers and sellers, so that individual firm however large supplies only a small part of the total quantity offered for sale in the market. The buyers are also numerous so that no monopsonistic power can affect the working of the market. No one single firm alone can affect the market price by changing its output.
2) Product Homogeneity: Product homogeneity means that all firms sell the same product. It is such that no buyer can differentiate the products of different firms in the market.
3) Free Entry and Exit of Firms: There is no barrier or restriction to the entry and exit of a firm in the industry. This condition is necessary to ensure that no firm is so powerful to control price and output.
4) Profit Maximization: The only objective of every firm is profit maximization and no other goal.
5) No Government Regulation: There is no government intervention in the market. There is absence of tariffs, subsidies and rationing of product.
* The five above assumptions is what makes a pure competition. The above assumptions with the two following assumptions are what make a perfect competition.
6) Perfect Mobility of Factors of Production: The factors of production are free to move from one firm to another. Workers can move between different jobs. There is perfect competition in the market of factors of production. Raw materials and other factors of production are not monopolized and labour is not unionized.
7) Perfect Knowledge: It is assumed that all sellers and buyers have complete knowledge of conditions of the market such as the prevailing price, availability of product. This means information is free and costless.